The Earth has a water scarcity problem, and it appears to be getting worse.
The amount of fresh water on the planet has remained fairly constant over
time, but the world’s population and the demands for usable fresh water
have increased dramatically. A number of companies are developing
technologies and infrastructure to help meet global demand, and a variety
of water-focused exchange-traded funds (ETFs) give investors the
opportunity to invest in and support those efforts.

According to the United Nations, water use has grown at more than twice the
rate of population increase in the past century, and agricultural demands
and water waste continue to increase. Only 2.5% of the water on Earth is
fresh water, and just 1% of the fresh water is easily accessible. By 2025,
it’s estimated that that 1.8 billion people will be living in areas with
water scarcity problems.

These statistics show a worrisome trend, making it clear that we need a
breakthrough in clean water technology, or at the very least a breakthrough
in the infrastructure systems that bring fresh water to those in need. Some
enterprising companies are trying to do exactly that, and a number of ETFs
give investors access to those companies.

The only real option in Canada is the
iShares Global Water Index ETF (TSX: CWW), which tracks the S&P Global Water Index. According to iShares, this
ETF will give you access to 50 companies from developed markets “selected
on the basis of relative importance of the global water industry within
their business models.” The methodology results in top holdings that
include well-established utilities and infrastructure companies from around
the world, such as
American Water Works Inc. (NYSE: AWK) and U.K.-based
United Utilities Group (LSE: UU). As can be seen in Chart 1, over the past 10 years to July 31, CWW has
delivered an average annual compounded rate of return of 6.6% edging out
the 6% posted by the Dow Jones Global TR Index.

If you look south of the border, you can find a few more ETFs focusing on
water equities. The U.S. equivalent to CWW is the
Guggenheim S&P Global Water Index ETF (NYSE: CGW), which provides the same exposure to the S&P Global Water Index as
CWW, but in U.S. dollars.

While there are a number of different water equity indices available, the
underlying theme is similar in that they consist of companies that derive
significant revenues from delivering fresh water. Chart 2 compares the
performance of the water ETFs since 2007, with the First Trust Water ETF
significantly outperforming its peers.

Given the relatively small universe of water companies, there is bound to
be some overlap in the portfolios of these ETFs. I’ll highlight two of the
more interesting companies here.

Geberit AG (VTX: GEBN) is a Swiss company and is a top holding in PIO, WTRX, and CGW. The
company’s mission is to “continuously improve the quality of people’s lives
with innovative sanitary products,” and it does this through three main
areas of product: sanitary systems; piping systems; and sanitary ceramics.
Over the past five years to mid-August, the stock price has risen to
US$479.70 from US$193.90, and it pays an annual dividend, which yielded
2.08%.

U.S. company
Ecolab Inc. (NYSE: ECL) is another popular holding of water ETFs. It describes itself as “the
global leader in water, hygiene and energy technologies and services” and
works to ensure that “water and energy are available everywhere.” Ecolab
employs innovative technologies to help customers use less water and
maximize efficiency in water use. ECL’s stock price has risen from to
US$131.30 from US$65.34 over the past five years to mid-August, and the
dividend has increased each year, for a current yield of 1.13% at recent
prices.

Commissions, management fees, and expenses all may be associated with
exchange-traded fund (ETF) investments. Please read the simplified
prospectus before investing. ETFs are not guaranteed and are not covered by
the Canada Deposit Insurance Corporation or by any other government deposit
insurer. There can be no assurances that the fund will be able to maintain
its net asset value per security at a constant amount or that the full
amount of your investment in the fund will be returned to you. Fund values
change frequently and past performance may not be repeated. The foregoing
is for general information purposes only and is the opinion of the writer.
No guarantee of performance is made or implied. This information is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice.